For Those Investors Asking About Silver

By Mitchell Clark, B.Comm. Published : October 8, 2010

It isn’t just gold stocks that are creating major wealth for shareowners; silver stocks are also participating in the precious metal run. And we’ve had many of our readers writing in to ask about silver. There aren’t too many silver stocks around that are highly liquid and have a strong following from institutional investors, but Silver Wheaton Corp. (NYSE/SLW) is a real standout.

I wrote about this company mid-September and the stock just hit a new all-time high of $27.29 per share. Thirty dollars a share seems like an easy price target in a market that just can’t get enough of precious metals. What’s interesting about Silver Wheaton is that the company isn’t in the silver mining business; it’s in the business of acquiring the rights to silver, gold and other precious metal production. It’s a great business model that saves on costs and maximizes profits in an appreciating commodity price environment.

In the mining industry, a gold producer will often mine precious metals other than gold. Mineral deposits have a tendency to be interlaced with each other. But a gold company doesn’t really want to have to deal with silver or copper. It mostly just wants to produce pure gold bars. It takes more investment to help process other precious metals and there are other logistical factors that add to the expense of producing non-core resources. A streaming company like Silver Wheaton comes in and buys the production in bulk at a locked-in price, which brings added, stable cash flow to the miner, and gives Silver Wheaton the chance to profit from the cost advantage.

Other silver plays like Pan American Silver Corp. (NASDAQ/PAAS), Hecla Mining Company (NYSE/HL), and even the iShares Silver Trust ETF (NYSEArca/SLV) have been strong performers in recent months, but none have generated the wealth that Silver Wheaton has.

I always like to follow and analyze winning stocks. It helps hone the skills necessary to discover the next major winners in the equity market. The Silver Wheaton success story is one that should be studied in business schools.

Since the financial crisis and the near-collapse of the stock market, this stock has gone from about $3.50 per share in late 2008 to its current record high price of over $27.00 per share. It’s not quite a 10-bagger, but it could turn out to be in the not-too-distant future.